“We don't have ‘customers’ anymore; we have people engaged in the community who want to use different services. So the bank has to pivot from developing everything internally to being a curator of apps, APIs, and analytics from marketplaces that give the best overall customer experience. Because I, as a customer, don't want to go to 200 different startup companies and try and put that together myself — I'd much rather have a trusted brand do that for me."
– Chris Skinner, author of the best-selling book, Digital Bank
Open Banking enables banks to share customer data securely with third-party providers (TPPs) in various verticals, such as insurance, fintech, utilities, and travel, as well as other banks through the use of application programming interfaces (APIs). This enables banks to create innovative data-driven financial products and services around a centralized platform.
The open banking movement is building momentum globally, radically changing the way banks approach business models, customer engagement, and service delivery. While open banking continues to advance in Europe, countries in Asia-Pacific are quickly catching up by implementing various initiatives to transform customer engagement and develop agile financial services.
Drivers of Open banking can be easily grouped under four main heads:
- Changing customer preferences:
- According to a Accenture’s 2019 Global Financial Services Consumer Study, nearly six in ten consumers would be willing to share significant personal information, such as location data and lifestyle information, with their bank and insurer in exchange for lower pricing on products and services.
Increasingly customers are unwilling to follow the closed model that banking industry has operated under and wants to ascertain the best option available to them influenced by their spending, financial and personal information. Consumers demand immediacy, 24/7 access, personalized and frictionless service – driving new expectations akin to the e-commerce experience.
2. Competition: As per Twimbit, 80 percent of customers in Asia-Pacific are looking forward to financial products from technology companies
Technology giants like Google, Apple, Facebook, Amazon and Alibaba (GAFAA) are utilizing the power of platform based innovations and taking advantages of the strategies they enable to maximise the power of technology. GAFAA is also excelling in providing seamless consumer experience through a digital first model.
This emergence of Fintechs and Bigtechs on the back of the technology is continuously putting Banks under pressure in the fronts of
Agile and effective services, built their success on the back of simplified operations
and digital-first capabilities to deliver a seamless and superior experience at a lower cost
This is evident from the fact that in 2019, new FinTechs have sprouted up in major financial services markets.
In the same year, one of the global fintech hubs, India’s fintech startups raised $2.6 billion, the highest ever in a calendar year. With the 180 rounds of capital raising in 2019, the overall investments in the fintech sector was $7.4 billion
- Regulation: Regulatory initiatives at present focused on to usher in more competition for customer dollars as well as promote efficiency, integration and inclusion in the financial services industry.
There has been broad global acknowledgement by regulators as to the benefits of both Open Banking – as a means of providing a more competitive and innovative financial services landscape – and Open APIs, as an enabler of this. Open Banking regulatory initiatives therefore have, and will, act as a catalyst for the development of Open APIs – with many initiatives so far focused on the payments and bank account information services.
The open banking regulatory landscape across Asia-Pacific varies by country. Open
banking is driven mainly by two financial initiatives announced by the Europe and
United Kingdom governments – Second Payment Services Directive (PSD2) and
Competition and Markets Authority (CMA).
80 percent smartphone penetration in Asia-Pacific, coupled with 72 percent of internet connections with above 2G speed, create an environment conducive to digital services growth. – GSMA
This has necessitated the need to leverage new digital capabilities – for instance, cognitive intelligence, data analytics, mobile and social technologies– to boost differentiation, enhance customer experience, and create new revenue streams.
Opportunity and future
Open banking or banking through APIs creates the opportunities for collaboration, rise of new players, newer sources of revenue, effective customer satisfaction and above all making banks the next market place. Open Banking is here and will transform the way we are able to pay for goods and services and manage our finances. It creates a significant market opportunity and potential to disrupt the financial services landscape.
We anticipate open banking to have far-reaching implications on the banking system specifically to serve the underserved segments and to increased pervasiveness of financial services
The nine largest banks like DBS and HSBC have all made their APIs live to facilitate improved customer experience and engagement, and enhance service offerings through consistent accessible customer data, which, in turn, will identify ways to increase digital revenue.
“ Open Banking requires banks to embrace new technologies and IT infrastructures, establish defined rules on how data is governed and made secure – especially cross-border – and drive cultural change. Clients want to access information and financial services through one API, not to deal with a wide array of banks using different APIs. This gives us a major opportunity to really transform the client experience for the better ” – Thomas Nielsen, Deutsche Bank